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Profitably could be better measured if companies adopted an alternative accounting method that truly reflected economic reality and could therefore improve the likelihood of business success.
REQ: You are to produce an individual report that considers the reasons the statistics of business failure and also explore the current concepts of accounting relating to the preparation of financial statements and the concept of profitability
It is evident that the organisations in the United Kingdom have been facing certain challenges as well as opportunities because of the implementation of BREXIT. The purpose of the paper is to provide the discussion on the influence of the BREXIT on the organisations like British Petroleum. For this purpose, the paper is providing the detailed analysis of the selected organisation using the strategic tools including PESTLE, Porter’s Five Forces, Generic Strategies, and Ansoff Matrix.
British Petroleum is renowned to be leading organisation in the oil and gas industry of the United Kingdom. It is considerably an integrated organisation having its operations in different areas of oil and gas industry such as exploring, refining, petrochemicals, and generation of power. The organisation has its operations in more than seventy countries with the production of more than three million barrels on daily basis along with the reserves of around seventeen billion barrels. The organisation under consideration is listed in London Stock Exchange while being the element of the FTSE 100 Index. It is also listed in Frankfurt Stock Exchange and New York Stock Exchange.
British Petroleum is the multinational organisation targeting the global market. It means that the success of the organisational strategies rely on the political temperatures all over the globe. Different organisations in the energy and oil industry are experiencing the stabilisation in political domain except the Arab countries. There are, however, certain concerns for the organisation to consider after Brexit regarding the reductions in the oil prices and changes in the requirements of oil as some countries are considering the alternative sources of energy. The political relationships and regulations for the UK with other EU countries will change accordingly after the Brexit. This will influence the political conditions to be instable in accordance to the restrictions in different domains of political grounds (Leeflang, et al., 2014).
The developed countries such as the United Kingdom have no significant influence on the sustainability of the British Petroleum. However, the Brexit has the negative influence on the economy of the United Kingdom due to which the organisations such as British Petroleum are more likely to suffer. The inflation will be increased in the economy of the UK based on which the costs for the products and services in the energy sector will increase leading to the decline in the consumption. The income levels of the people in the UK after Brexit will suffer in terms of the increase in spending due to the increase in the costs of different services and products (Doole & Lowe, 2008).
The social standards for the countries observe the changing trends and this may have some extent of influence on the demand of the products and services of the oil and gas industry. This also have some influence on the availability of the labour in the UK markets. For instance, the majority of the people in the UK are found to be ageing due to which there is an increase in organisations committing to offer their pensions to employees. The rate of population growth is also the considerable element in the social factor that has certain influence on the operations of the British Petroleum in global market. Considering the matter of Brexit, the organisations such as British Petroleum in the UK will face the shortages in labour due to inadequate deliverance and acquisition of the education. It is said so because the movement of students for obtaining specialised courses will be restricted (Heffron & Roberts, 2016).
The areas of the British Petroleum require the technological developments to consider in the operations and strategies. The consumers are found to be interested in online shopping for different products and services based on which the considered organisation is required to develop adequate infrastructure to ensure the fulfilment of the increase in demand. The use of the technology in the exploration, marketing, and production of the products and services is found to be another element to be considered in the UK. The concern of Brexit will influence the technological advancements in the operations of the British Petroleum in a way that the organisation is required to consider the training and development of employees (Selley & Sonnenberg, 2014).
The laws and regulations are found to be changing on the basis of the daily governmental regulations and laws. There are different challenges for the organisations like British Petroleum such as laws for employment, policies for health and safety, and policies for taxation. The organisation selected for this paper is found to be involved in exploration as well as production of oil while being in compliance with the existing laws regulating such activities to conduct the activities. The governments are found to be concerned with the employees’ health and safety within the industry of oil and gas along with the people living in areas of oil exploration (Moynihan & Titley, 2001).
Regarding to the environment, there is an increasing concern over the use of fuels of fossil producing the harmful emissions such as carbon. However, the oil remains the major source of energy with which the trends are moving towards the alternative sources of energy being considered friendly for environment. Different countries are developing certain laws and regulations for coping with the environmental risks being posed by the organisations of oil and gas industry. The Brexit has insignificant impact on the environmental regulations because of the modifications in the environmental regulations as they may differ with the EU rules and regulations (Burns, 2012).
It is noticed that the threat of new entrance within the UK’s oil and gas industry is Low for the reason that there is an extraordinary obstacle of entrance in this business. Certain of the businesses which establishes the oil and gas industry such as British Petroleum utilises substantial and extremely costly equipment in best locations (Hu, et al., 2013). The examples include pumping trucks as well as other gigantic equipment, massive capital investment expenditures are encompassed, like extraordinary infrastructure budget which includes land acquirement, road access in fields and pipelines and so forth. Accessibility of human resources in regards of a shortage of subsurface reservoir engineer as well as geologist all this subsidise to the greater barrier of entrance within the business. Since the UK separated itself from the EU, British Petroleum becomes the biggest petroleum organisation within the UK. It can be said that if the government of the UK promotes this business sector and provides opportunities for new oil industry business within the UK, then the threat of new entrance would gradually increase (Mitchell, 2016).
As far as the bargaining power of supplier is concerned, it was comparatively high as well as it is determined by the existence of great cost of moving to a different supplier (Selley & Sonnenberg, 2014). Similarly the existence of comparatively slight amount of energy and substitute energy providers (concentrated suppliers), similarly certain of the buyers like British Petroleum as well as certain other businesses which establish the business are vertical integration corporations thus they may perhaps not even have the requirement to necessitate the facilities of this suppliers consequently the power of the suppliers is Intermediate/Medium. Nonetheless, after the Brexit, the bargaining power of supplier has decreased. This is because within the EU there were certain petroleum companies working in collaboration, nevertheless, after the referendum, British Petroleum had to work independently making bargaining power of supplier lesser (Heffron & Roberts, 2016).
It has been observed that the balance of power changes in the direction of purchasers. Oil is a product and a sole corporation`s oil or its drilling facilities are not certainly dissimilar from other businesses. It leads buyers to drive in support of inferior prices as well as improved agreement relations (Hu, et al., 2013). The power of the buyer was considered as Medium for the reason that buyers were influential as well as can shift from the consumption of British Petroleum goods to different oil and Gas Business’s goods and at the similar phase a buyer`s choice does not inevitably have an influence on the corporation. Brexit has led the bargaining power of buyers reduced because now the buyers within the UK have fewer opportunities to switch to other petroleum company’s products (Mitchell, 2016; Doole & Lowe, 2008). This has already marked decrease in the bargaining power of buyers to a certain extent.
As far as the threat of substitutes is considered, it was Low even before the UK was the member of the European Union. The substitutes for the petroleum industry comprises alternate energies like coal, gas, solar power, wind power, hydroelectricity as well as the nuclear-powered energy that is currently in the emerging stage as well as likewise encompasses greater cost of production (Selley & Sonnenberg, 2014). In addition to this, oil is of excessive significance; it is not merely utilised in running cars only, however, it is correspondingly utilised in the construction of plastics and different resources. The mainstream of the means of transport presently depends profoundly on oil and it is required in order to produce power that suggests that petroleum would be contingent on as opposed to the option because of its level of advancement and the high cost of generation. It can be said that to some extent the threat of substitute would remain low since the UK has separated itself from the European Union (Heffron & Roberts, 2016; Doole & Lowe, 2008).
Within this particular business industry, the range of competitive rivalry is great; this industry is considered and comprised by gigantic businesses that create little-distinguished goods and there is a stumpy risk of a substitute as well as the likewise low threat of new entrance within the petroleum industry (Hu, et al., 2013). It can be said that the competitive rivalry would diminish to certain extent because within the EU, there were large petroleum companies and greater competition, nevertheless, British Petroleum is the largest company in the UK, and since it has pushed back itself from the EU, the rivalry would reduce (Heffron & Roberts, 2016).
There are three major strategic approaches for the Generic strategies of Porter and they include cost leadership strategy, focus strategy, and differentiation strategy. These strategies can be implemented to the products of any industry for gaining the competitive advantage in the market. The strategy of cost leadership is further referred to the insignificant strategy of cost leadership with the aim of gaining competitive advantage through the reduction in cost below the competitors. The differentiation strategy is found to be the competitive strategy of business for gaining the competitive advantage through the differentiation of product and services from the competitors. Similarly, the focus strategy uses the core competencies of industries to serve the group of consumers as the niche market (Selley & Sonnenberg, 2014; Doole & Lowe, 2008).
Considering the British Petroleum, it can be said that the method of gaining competitive advantage is the reduction in costs leading to the explosions in the year 2005 in Texas. It is further stated that the British Petroleum has implemented around twenty five percent reduction on the fixed cost from the year 1998 to 2000 having the influence on the maintenance and infrastructure of the organisation. It can be said that Brexit can appear to be the opportunity for organisation under consideration in the UK to fulfil the energy demands as they can be encouraged for considering the maximisation of extraction of production from the UKCS in compliance with the strategy and message of the UK Regulator (Burns, 2012; Johnson, et al., 2014). The demonstration of such form in the Government is providing the approximate opportunity to provide the timely incentives to the selected organisation to invest in the UK. For the service sector along with the organisations working in the oil and gas industry of the UK, there would be no such modifications in the standards for the suppliers of the British Petroleum in case such standards of European Union are being followed (Johnson, et al., 2014; Selley & Sonnenberg, 2014).
Considering the element of cost leadership for the British Petroleum, it has been noted that the demand for oil in the UK can expectedly decline by one percent or around sixteen hundred barrels on daily basis as the economic decline in the country may be evidenced due to Brexit. This sort of gloomy aspect has sent the BP stocks to decline by more than four percent due to which the prices of oil are under pressure leading to the further decline. It has been the concern for the organisation to consider the consistent struggle of fighting over the issue of oversupply with which the oil prices are influenced. The Brexit is adding an additional aspect of uncertainty for the organisation because the investors are expected to insignificantly incline to speculate on increasing prices and exposing themselves on the higher risk (Heffron & Roberts, 2016; Leeflang, et al., 2014).
The British Petroleum is successfully differentiating itself from its competitors on the basis of its research and developments while involving the new projects by creating and enhancing the energy products. The British Petroleum and Emerson Project Management has increased the flow of the wireless technology through its expansion in the form of implementation and installation of the smart wireless of Emerson within its Research and Development department. The organisation has also considered the refining and marketing strategies through the petroleum products while selling them all across the globe (Leeflang, et al., 2014; Doole & Lowe, 2008). The organisation is operating in hundred countries and in seventeen global refineries and its retail network is comprised of more than twenty two thousand stations. This has been done for differentiation within the energy industry being the benefit of gaining competitive advantage. The organisation has further established the standards for cost leadership strategy, market strategy, differentiation strategy and focus strategy to increase the profit while generating revenue and a competitive advantage in the UK industry (Burns, 2012; Mitchell, 2016).
The Ansoff matrix reflect the market mix for the new and existing markets reflecting the ability for organisations like British Petroleum to take strategic decisions. Such decisions enable organisations to analyse the ways through which British Petroleum has diversified itself from petroleum to the scope beyond petroleum. The selected organisation has a clear and focused strategy for penetrating marketing to each segment of market while diversifying the products such as lubricants motor oils, which are available to support the strategy of penetrating market. The development of product involves the strategy as the most effective implemented one when the specific product or service is maturity or a decline phase (Hu, et al., 2013; Doole & Lowe, 2008). This is due to the environmental fuel crisis, which has become important to dig for energy resources. However, this strategic approach provides a competitive edge to organisation under consideration such as bio fuel through the sustainable sources. It can be said that the British Petroleum has transformed its promotional strategies beyond the scope of petroleum only. It has been predicted by IEA that the supply of future energy is expected to be from the renewable resources (Johnson, et al., 2014).
The British Petroleum has been implementing the market strategy focusing on the development of market because of its presence in more than eighty countries. The selected organisation has held the distribution channels of its own along with the dealer distribution channel. Similarly, the organisation has targeted the demographic group including the compressed natural gas or CNG for the purpose of domestic concerns. The organisation has gained the market share as well along with the sufficient capacity of growth in this area through the expansion into the areas of Africa, Russia, and Europe. It is also noted that the diversification is the risky strategy for the British Petroleum to secure the future of the organisation (Moynihan & Titley, 2001; Johnson, et al., 2014). It is noted that the organisation has invested eight billion dollars within the development of economic ways for producing the renewable and alternative energies. It is so because of certain speculations that solar energy is expected to be used by more than fifty percent of the recent utilisation. For gaining the specialised aspects in the sector of energy production, the British Petroleum has invested a sufficient amount for regaining the losses because of the incidents of oil spills. The organisation has understood the importance of the diversification strategy once the specific aspects are gained. This can lead the organisation to maintain the position of market leader through the selection of emerging markets using entry strategies (Doole & Lowe, 2008; Burns, 2012).
It is of considerable importance for the British Petroleum to consider the aspects when the UK initiates its negotiation for terms with the European Union. It is expected to be fair to reflect that the oil and gas industry of the UK is expected to be monitored closely considering the movement towards the Scottish Independence into the immediate action while capitalising on the remaining votes from the people of Scotland. Such significant and heavy challenges around the practicalities of dividing the oil reserves for the UK for accommodating the sector of Scotland would be permitted to decline the agenda due to negative vote within two years (Burns, 2012; Leeflang, et al., 2014).
It can be concluded that the Brexit may lead the British Petroleum to face the increase in import costs along with the increase in uncertainty over the supply of future energy. The analysis of the selected organisation using the major tools of marketing and management has provided the evidence of the Brexit influencing the strategies of British Petroleum in future. It can be said that the organisation under consideration has always been the leading organisation in the global market and is required to maintain its competitive position after the Brexit.